Steel Long and Steel Flat

Report

Multi Commodity Exchange of India Ltd

102 A, Landmark, Suren Road, Chakala,
Andheri (East), Mumbai - 400 093
Tel: 022 66494000 / 26836016, Fax: 022 66494151
Email - info@mcxindia.com www.mcxindia.com
Global Scenario

i. In 2002 World Crude Steel output at 902 million metric tons was 6% more than
the previous year.
ii. China remained the world’s largest Crude Steel producer in 2002 also (182
million metric tons) followed by Japan (108 million metric tons) and USA
(92million metric tons). India occupied the 9th position (28.8 million metric tons).
iii. USA was the largest importer of steel in 2001 followed by China and Germany.

iv. Japan was the largest exporter of steel in 2001 followed by Russia and Ukraine.

(v) Other significant recent developments in the global steel scenario have been:

(vi) The crisis of excess capacity and prevalence of market distorting practices in the
global steel market has induced protectionist measures from a number of steel trading
countries. To address these issues a series of high level inter-governmental meetings have
been held under the auspices of the OECD. As a part of the long-term solution to global
steel over-capacity, the proponents of the OECD steel deliberations are of the view that
subsidies and related government support have caused and are causing significant
distortions in the steel markets and these will be required to be reduced and where
possible eliminated.

vii. In March 2002 the US President announced imposition of temporary safeguard

measures on import of key steel products into USA.
viii. In retaliation to the US action EU has also imposed provisional safeguard
measures against import certain steel products.
ix. China, Canada and Thailand are some of the other countries that have initiated
safeguard investigations against import of steel products into their countries.

Indian Scenario

India produces 32 – 33 million tons of steel per annum, which is mainly construction
steel. India imports its entire requirement of specialized steel such as for razor blades, car
body etc. The 3 – 4 integrated steel plants produce 24 m tons and the small steel
manufacturers produce 8 m tons.

The important ports for steel import and export are Vizak and Chennai. India also exports
construction steel to countries like China, which is of excess. The important organizations
are Steel Corporation of India and the Small Steel Producers Association.

Market Scenario

o After liberalisation, with large scale addition to steel making capacity,

there is no shortage of iron and steel materials in the country.
o Apparent consumption of steel increased from 14.84 million tonnes in
1991-92 to 28.90 million tonnes in 2002-03.
 o The production of steel in 2002-03 is 32.85 million tonnes as against 30.63
million tonnes in 2001-02 thereby registering an increase of 7.2%.
o The demand of steel has been firmed up both at home as well as
internationally.
o Efforts are being made to boost demand particularly in rural areas and also
to increase exports.
o Prices of iron and steel have witnessed a steady rise over the last few
months. Domestic prices have firmed up in the face of strong demand –
both domestic and foreign.

Production

• Steel industry was de-licensed and decontrolled in 1991 and 1992 respectively.
• India is the 9th largest producer of steel in the world.
• In 2002-03, finished steel production was 32.85 million tonnes.
• Pig iron production in 2002-03 was 5.26 million tonnes.
• Sponge iron production was 6.908 million tonnes in 2002-2003.
• In 2002-03, nearly 32% of crude steel production was by public sector the
remaining 68% was by private sector.
• In 2002-03, the integrated steel plants produced 43.5% of finished steel and the
remaining 56.5% was by the secondary producers.
• Last seven years production performance is as under:-

1996- 1997- 1998- 1999- 2000- 2001-02 2002-

97 98 99 2000 01 03

Pig Iron 3.30 3.39 3.00 3.18 3.39 3.95 5.26

Sponge Iron 5.00 5.32 5.11 5.34 5.44 5.44 6.90

Finished Steel 22.72 23.37 23.82 27.17 29.26 30.63 32.85

In Million Tons

Production in 2002-03

Main Secondary Total

Producers Producers

Pig Iron 11.00 (8.3) 41.50 (35.8) 52.50 (29.0)

Sponge Iron - 2.26 54.44

Finished Steel 143.00 (9.6) 185.50 (5.5) 32.85 (7.2)

** Figures in brackets indicate % increase over last year.
Demand - Availability Projection

• Demand – Availability of iron and steel in the country is projected by Ministry of

Steel annually.
• Gaps in Availability are met mostly through imports.
• Interface with consumers by way of a Steel Consumer Council exists, which is
conducted on regular basis.
• Interface helps in redressing availability problems, complaints related to quality.

Pricing & Distribution

o Price regulation of iron & steel was abolished on 16.1.1992.

o Distribution controls on iron & steel removed except 5 priority sectors,
viz. Defence, Railways, Small Scale Industries Corporations, Exporters of
Engineering Goods and North Eastern Region.
o Government has no control over prices of iron & steel.
o Open Market Prices have been generally stable, though fluctuations have
been noticed.
o Price increases of late have taken place mostly in long products than flat
products.

Imports of Iron & Steel

• Iron & Steel are freely importable as per the extant policy.
• India has been annually importing around 1.5 Million Tonnes of steel.
• Last 6 year’s import of finished carbon steel is given below:-

Year Import Qty. (In Million Tons)

1996-97 1.56
1997-98 1.59
1998-99 1.13
1999-2000 1.60
2000-2001 1.41
2001-2002 1.27
2002-2003 1.55

• Imports have largely dropped partly an indication of greater self-sufficiency and

partly the ability to control inflow of seconds and defectives.
• To check unbridled imports of cheap/seconds & defective steel, several measures
have been put in place, like;

a. The Government has fixed floor prices for seven items of finished steel
viz. HR coils, HR sheets, CR coils, Tinplates, CRNO, Plates and Alloy
Steel Bars & Rods.
 b. The other notable measure in this regard are that imports of certain types
of steel have been subject to mandatory compliance of quality standards as
specified by the Bureau of Indian Standards (BIS). Adherence to BIS
norms imply supplying information like name and address of the importer,
generic or common name of the commodity, net quantity in terms of
standard units of weights and measures, month and year of packaging and
maximum retail sale price. Moreover all manufacturers/exporters of the
listed products shall be required to register themselves with the BIS.
c. Further protection in this regard has been the issuance of the Government
notification to 3 major ports – Kolkata, Mumbai and Chennai to monitor
the flow of foreign steel into the country.
d. The customs duty on second and defective HR Coils has been raised to the
bound rate of 40 per cent.

Anti dumping duty has been levied on import of HR coils from Russia and
Ukraine.

Exports of Iron & Steel

• Iron & Steel are freely exportable and India is a net exporter of steel.
• Advance Licensing Scheme allows duty free import of raw materials for exports.
• Duty Exemption Pass Book Scheme also facilitates exports.
• Indian steel exports have been subject to anti-dumping/anti-subsidy duties actions
by the stronger economies over the last few years. These include:

a. USA has imposed anti dumping duty on import of stainless steel round
wires and stainless steel wire ropes from India. It has also imposed anti
dumping as well as countervailing duties on import of cut – to –length
carbon steel plates and HR carbon steel flat products from India. India
however, has been exempted from the safeguard duties under Section 201
of the US Trade Laws on almost all-steel products except carbon flanges.
This is on account of the country’s status as a developing nation.
b. EU has imposed anti dumping duty on import of stainless steel wires (= or
> than 1 mm diameter) from India. It has also taken AD/CVD actions on
import of HR coils and quarto plates from India. However, a Suspension
Agreement with exporters like SAIL, allows the company to sell at a price
not lower than the agreed one. The EU has also imposed safeguard
measures on import of steel, however, none of the current safeguard
measures apply to products of Indian origin.
c. China has also imposed safeguard measures on import of various items of
steel products by fixing tariff quotas. However, these measures do not
apply to India.

• The rising trend in Indian steel exports that was being witnessed in the last couple
of years was halted due to these anti dumping actions initiated by the advanced,
developed nations of the world, which led to the loss of major markets for the
 Indian steel exporters. Despite the initial setbacks Indian exports have recovered -
largely due to the ability to find out alternative export markets where selling steel
has been profitable.

• Last 7 year’s export of finished carbon steel is given below.

Last 7 year Exports Qty. in Million Tons

1996-97 1.622

1997-98 1.880

1998-99 1.771

1999-2000 2.670

2000-01 2.664

2001-02 2.725

2002-03 4.20

• Steel Exporters’ Forum has been recently set up to boost steel exports.
• An Anti dumping Directorate has been set up under the Ministry of Commerce &
Industry with adequate power to fight trade actions while remaining within the
WTO framework.

Duties & Levies on Iron & Steel

Custom Duties

• Peak rate of Custom Duty has been reduced sharply during last 5 years .In the
Union Budget 2003-04 it has been further reduced to 25%. This has forced
domestic industry to become internationally competitive.
• The custom duty on seconds and defective steel has also been retained at 40%,
which would increase the gap between the prime and the defective category and
make the import of seconds and defectives less attractive.
• Custom Duty has been reduced on a wide range of inputs, which would bring
down the cost of production for the domestic steel industry.
• In the Union Budget 2003-04 the Customs Duty on Met Coke has been
rationalised at 10%. However, the steel manufacturers have been given exemption
from paying 4% SAD.

Excise Duty

• Excise Duty on iron & steel has not been reduced in successive budgets.
• At present excise duty on all iron and steel is 16% ad valorem called CENVAT.
Levies on Iron & Steel

SDF- This was a levy started for funding modernisation, expansion and development of
steel sector.
The Fund, inter-alia, supports :

1. Capital expenditure for modernisation, rehabilitation, diversification, renewal &

replacement of Integrated Steel Plants.
2. Research & Development
3. Rebates to SSI Corporations
4. Expenditure on ERU of JPC

Expenditure on ERU of JPC

• Fund was abolished on 21.4.94

• Cabinet decided that Corpus could be recycled for loans to Main producers
• Interest on loans to Main Producers be set aside for promotion of R&D
• An Empowered Committee has been recently set up to guide the R&D effort in
this sector.
• EGEAF – Was a levy started for reimbursing the price differential cost of inputs
used for engineering exporters. Fund was discontinued on 19.2.96.

Opportunities for growth of Iron and Steel in Private Sector

The New Industrial Policy Regime

The New Industrial policy has opened up the iron and steel sector for private investment
by (a) removing it from the list of industries reserved for public sector and (b) exempting
it from compulsory licensing. Imports of foreign technology as well as foreign direct
investment are freely permitted up to certain limits under an automatic route. Ministry of
Steel plays the role of facilitator, providing broad directions and assistance to new and
existing steel plants, in the liberalized scenario.

The Growth Profile

(i) Steel
The liberalization of industrial policy and other initiatives taken by the Government have
given a definite impetus for entry, participation and growth of the private sector in the
steel industry. While the existing units are being modernized/expanded, a large number of
new/greenfield steel plants have also come up in different parts of the country based on
modern, cost effective, state of-the-art technologies.
Increasing role of private sector in total production can be seen from the fact that its share
has increased from 51.4% in 1991-92 to approximately 68% in 2002-03. This trend is
likely to continue.
At present, total (crude) steel making capacity is over 30 million tonnes and India, the 8th
largest producer of steel in the world, has to its credit, the capability to produce a variety
of grades and that too, of international quality standards. As per the ratings of the
prestigious " World Steel Dynamics", Indian HR Products are classified in the Tier II
category quality products – a major reason behind their acceptance in the world market.
EU, Japan have qualified for the top slot, while countries like South Korea, USA share
the same class as India.

DEVELOPMENT OF INDIAN STEEL SECTOR SINCE 1991

The economic reforms initiated by the Government since 1991 have added new
dimensions to industrial growth in general and steel industry in particular. Licensing
requirement for capacity creation has been abolished, except for certain locational
restrictions. Steel industry has been removed from the list of industries reserved for the
public sector. Automatic approval of foreign equity investment upto 100% is now
available. Price and distribution controls have been removed from January, 1992, with a
view to make the steel industry efficient and competitive. Restrictions on external trade,
both in import and export have been removed. Import duty rates have been reduced
drastically. Certain other policy measures such as reduction in import duty of capital
goods, convertibility of rupee on trade account, permission to mobilise resources from
overseas financial markets and rationalisation of existing tax structure for a period of
time have also benefited the Indian Steel Industry.

Production of Iron & Steel

(a)Finished Carbon Steel Production

The total production of finished carbon steel in the country has been 30.11 million tonnes
in 2001-02 as compared to 14.33 million tonnes in 1991-92, indicating an increase of
110.12%. Producer-wise production of finished steel. The high share of the secondary
sector in finished steel production is largely due to substantial supplies of semis, the basic
feed material from the main producers for conversion to needed shapes by rolling.

PRODUCTION OF FINISHED CARBON STEEL (In million tonnes)

% of share of
Main Secondary Grand
Year Secondary
Producers Producers Total
Producers
1991-92 7.96 6.37 14.33 14.5%
1992-93 8.41 6.79 15.20 44.7%
1993-94 8.77 6.43 15.20 42.3%
1994-95 9.57 8.25 17.82 46.3%
1995-96 10.59 10.81 21.40 50.6%
1996-97 10.54 12.18 22.72 53.6%
1997-98 10.44 12.93 23.37 55.32%
1998-99 9.86 13.24 23.82 57.32%
1999-2000 11.20 15.51 26.71 58.07%
2000-2001 12.51 17.19 29.7 57.88%
2001-2002 13.05 17.58 30.63 57.4 %
2002-03 14.343 18.650 32.993 56.53 %
2003-04 (Apr-
8.553 11.400 19.953 57.13 %
Oct)

(b) Pig Iron Production

The total production of Pig Iron was 3.946 million tonnes in 2001-02 as compared to 1.59
million tonnes in 1991-92 registering an increase of 148.18% during the considered
period. Earlier Pig Iron was produced primarily by the integrated steel plant of SAIL and
RINL. Of late, the share of stand-alone pig iron units has increased significantly.

PRODUCER – WISE PRODUCTION OF PIG IRON (In million tonnes)

Main Secondary Grand %age share of the
Year
producers producers total Secondary Producers
1991-92 1.49 0.10 1.59 6.3%
1992-93 1.68 0.17 1.85 9.2%
1993-94 1.98 0.27 2.25 12.0%
1994-95 2.01 0.78 2.79 28.0%
1995-96 1.74 1.06 2.80 37.9%
1996-97 1.73 1.57 3.30 47.5%
1997-98 1.70 1.68 3.39 49.5%
1998-99 1.37 1.60 2.97 53.87%
1999-2000 1.24 1.94 3.18 61.08%
2000-2001 0.96 2.15 3.11 69.13%
2001-2002 1.02 3.05 4.07 75.04 %
2002-2003 1.09 4.17 5.26 79.25 %
2003-04 (Apr-Oct) 0.671 2.450 3.121 78.50 %
(c) DRI Production

The production of DRI has increased from 1.31 million tonnes in 1991-92 to 5.403
million tonnes in 2001-02, registering an increase of nearly 4.12 times over the
considered period. India has emerged as the second largest producer of DRI in the world
after Venezuela.
PRODUCTION OF DRI (In million tonnes)
Year Production % increase
1991-92 1.31 -
1992-93 1.60 22.1%
1993-94 2.40 50 %
1994-95 3.39 41.3%
1995-96 4.34 28.02%
1996-97 5.05 16.4 %
1997-98 5.32 5.34%
1998-99 5.12 (-)3.8%
1999-2000 5.34 4.30%
2000-2001 5.44 1.90%
2001-02 5.40 (-) 0.70 %
2002-2003 6.44 19.14 %
2003-04 (Apr-Oct) 4.375 12 %

Import and Export of Iron & Steel

IMPORT OF IRON AND STEEL (In 000 tonnes)

Total Value
Steel
Year Pig Iron (Pig Iron + Steel)
TOTAL(CARBON)
(Rs. In Crores)
1991-92 152 1043 1441.32
1992-93 73 1115 1676.00
1993-94 21 1153 1613.00
1994-95 1 1936 2536.00
1995-96 8 1864 3181.00
1996-97 15 1822 3053.00
1997-98 3 1815 2904
1998-99 2 1637 N.A.
1999-2000 3 2200 N.A.
2000-2001 2 1632 N.A.
2001-2002 2 1375 N.A.
2002-2003
2 1500 N.A.
(Prov)
2003-04
- 875 .N.A.
(Apr-Oct)

Although India started exporting steel way back in 1964, exports were not regulated and
depended largely on domestic surpluses. However, in the years following economic
liberalisation, export of steel recorded a quantum jump.

EXPORT OF IRON AND STEEL (In 000 Tonnes)

Finished Total Total Value
Year Pig Iron Semis
Carbon Steel Steel (Rs. Crores)
1991-92 - 5 368 373 283
1992-93 16 154 741 895 708
1993-94 620 585 1020 1605 1678
1994-95 466 399 873 1272 1438
1995-96 502 395 925 1320 1939
1996-97 451 300 1622 1922 2231
1997-98 785 503 1880 2383 2512
1998-99 281 174 1770 1944 N.A.
1999-2000 290 328 2670 2998 N.A.
2000-2001 230 195 2805 3000 N.A.
2001-2002 242 270 2730 3000 N.A.
2002-2003
580 450 3700 4150 N.A.
(Prov)
2003-04
291 359 2707 3066 N.A.
(Apr-Oct)

Apparent Consumption of Finished Carbon Steel

Apparent consumption (i.e production + imports - exports +/- variation in stocks) of
finished steel, year-wise, has been shown below. Apparent consumption represents the
actual demand of steel in a particular period/year. It has increased from 14.84 million
tonnes in 1991-92 to 27.35 in 2001-02. Increase in apparent consumption has not been
uniform, fluctuating from a high of 21.8% to low of 1.2 % reflecting uneven growth in
steel demand.

APPARENT CONSUMPTION OF THE FINISHED

STEEL(CARBON)
(in million tonnes)
Year Apparent Consumption of Finished Steel
1991-92 14.84
1992-93 15.00 (1.2 %)
1993-94 15.32 (2.0 %)
1994-95 18.66 (21.8 %)
1995-96 21.43 (14.8 %)
1996-97 22.12 (3.2%)
1997-98 22.63(2.3%)
1998-99 23.15(2.3%)
1999-2000 25.01(8.03%)
2000-2001 26.87(7.44%)
2001-2002 27.350 (3.1%)
2002-2003
29.015 (5.7%)
(Prov)
2003-04
16.666 (3.4%)
(Apr-Oct)
(The figures in brackets indicate the percent increase over the previous
year/corresponding period.)

Additional Capacity Creation in Private Sector Since 1991

After de-licensing of Indian Iron and Steel Industry and as a result of the steps taken for
creation of additional capacity in the private sector, 19 projects involving a total
investment of Rs. 30,835 crores equivalent to a capacity of approx. 13 million tonnes per
annum have already been cleared by Financial Institutions and are in various stages of
implementation. Already 8 units with a total capacity of Approx 5.45 million tonnes have
already been commissioned.

IMPORTANCE OF STEEL

Steel has had a major influence on our lives, the cars we drive, the buildings we work in
,the homes in which we live and countless other facets in between. Steel is used in our
electricity-power-line towers, natural-gas pipelines, machine tools, military weapons-the
list is endless. Steel has also earned a place in our homes in protecting our families,
making our lives convenient, its benefits are undoubtedly clear.

Steel is by far the most important, multi-functional and most adaptable of materials. The
development of mankind would have been impossible but for steel. The backbone of
developed economies was laid on the strength and inherent uses of steel.

The various uses of steel which in turn is a measure of adaptability of steel can be judged
from the following characteristics of steel :

- Hot and cold formable

- Weldable

- Suitable machinability

- Hard, tough and wear resistant

- Corrosion resistant

- Heat resistant and resistance to deformation at high temperatures.

Steel compared to other materials of its type has low production costs. The energy
required for extracting iron from ore is about 25 % of what is needed for extracting
aluminum. Steel is environment friendly as it can be recycled. 5.6 % of element iron is
present in earth's crust, representing a secure raw material base . Steel production is 20
times higher as compared to production of all non-ferrous metals put together
The steel industry has developed new technologies and has strived hard to make the
world's strongest and most versatile material even better. There are altogether about 2000
grades of steel developed of which 1500 grades are high grade steels. There is still
immense potential for developing new grades of steel with varying properties .The large
number of grades gives steel the characteristic of a basic production material
Steel has enjoyed an important position in our lives and will continue to do so in the
years to come. However, the degree to which it maintains its dominant position will
depend on if steel can exploit its potential by developing new higher grades and adaptable
grades . This can be achieved by refining the structure and applying alloying techniques
and thus furthering its utility value. We will have to find out ways to use steel and be
ready to face a stiff competition from Aluminium in the future.

INTERNATIONAL STEEL MARKET ROUNDUP - January 2004

FLAT PRODUCTS

As expected, US prices continue to creep up. Order intake at the steelmakers remains
steady. Distributors need to fill holes that have developed in warehouse inventories.
There are signs that industrial production has begun to turn around. However, service
centres still report difficulty in passing on the mill increases to their customers. The
withdrawal of the Section 201 tariffs has not caused too much immediate concern about
imports, given the state of the economy, the weakness of the Dollar and the disincentive
of escalating ocean freight rates. Several domestic mills are experiencing supply side
problems which are causing late deliveries.

There is fresh concern over the level of stocks in Japan. Local inventories of strip
products, at end October 2003, rose by 2.6 percent compared with the previous month.
The market had been expecting a decrease. However, quayside warehouse stocks of
imported flat products fell by 9.5 percent from September - the first decline in 6 months.
Demand from the auto and construction machinery sectors is good and export enquiries
are still encouraging.

Posco of South Korea forecasts both home and export demand, particularly from China,
to be strong during the next year. Order intake at the Taiwanese producers is firm as they
are still benefiting from booming business with mainland China. CSC will raise domestic
prices for all its steel products except electro-zinc coated coil for the first quarter 2004.
However, the company has decided not to change export prices for the Japanese market.

The EU mills are expressing their determination to increase prices in the first quarter of
2004. Procurement charges for raw materials, energy and transport have grown
significantly during the last year. However, we are now in the typically slow pre-
Christmas period and, for the moment, buyers are holding off purchasing. Many
negotiations are not expected to close until late December.
The economic climate in Poland is improving and should translate into increased steel
demand in the near future. In Slovakia and the Czech Republic domestic consumption is
good because both economies are going well. Supply and demand are evenly balanced. It
is easy for the mills to export and they are enjoying good order loads. Imports generally
remain at a steady level. The only real problem besetting the industry is delayed payment.
We have noted a slight negative price tendency, which is probably due to a seasonal slow
down in sales.

LONG PRODUCTS

US pricing activity continues to improve as producers move to recover margins lost to

higher input costs. Lately, demand has started to harden in the non-residential
construction market but as the worst of the winter weather is still to come, this recovery
may not last.

Japan is moving into the season of low demand for long products. However, the
producers' efforts to raise prices on the back of soaring ferrous scrap charges and
transport costs have met with further success in recent weeks. South Korean demand has
turned downwards, as the construction sector begins to cool. The mills hope for some
recovery based on future predictions for reconstruction work to buildings and
infrastructure damaged by the Summer typhoon. Activity in the Taiwanese building
market has failed to rally. Steel values continue to climb only as a result of ever rising
expenditure on billet.

In general, EU producers have not been able to persuade buyers to accept higher prices to
offset their heavy input costs. The Polish economy is picking up and this should create a
more encouraging environment for the long product makers come the Spring. For the
moment, seasonal factors have not undermined prices. Although we are now in the winter
period, sales to the Czech/Slovak building industry are still at a good level. There is some
downward price pressure along the Czech/Slovak border with Poland but this is not really
influencing the situation throughout the rest of the region.

GLOBAL STAINLESS OUTPUT UP 850,000 TONNES IN 2003 (4.4 PERCENT)

Our estimate for global stainless steel output in 2003 is 20.2 million tonnes up 4.4 percent
on the year earlier figure. We forecast further expansion in 2004 to around 21 million
tonnes. Western World production is expected to rise from 18.7 million tonnes in 2002 to
19.5 million tonnes this year and to over 20 million tonnes in the following twelve
months.

Demand in the European Union has been rather sluggish since January. In contrast,
export sales have improved. This has enabled the steelmakers to increase output by an
estimated 3.5 percent in 2003. Over the next twelve months domestic consumption
should be better but foreign supplies may drop a little.
Japanese production is expected to end this year at a figure 3.4 percent higher than in
2002. All the improvement has been the result of a rise in export volumes - mainly to
China. Home consumption should expand marginally in 2004 and sales to the Asian
markets should hold up quite well.

In contrast, the situation in the United States is dire. Domestic demand is flat. Exports are
almost impossible to secure. Output this year is likely to be down 2.5 percent. Further
cuts are possible if the threatened closure of melting at the J and L plant takes place.

Posco's new steelmaking unit is near full production. Korean output this year will expand
by approximately 18 percent. Further growth is forecast in 2004 when the full effect of
the new capacity is felt. Most of the extra supply will be sent to China as hot rolled coil.

Foreign sales (particularly to China) have propped up stainless steelmaking in Taiwan.

Output this year will be 2.5 percent higher than in 2002, despite local demand being slow.

We also anticipate a modest rise in production for the "others" classification of the
Western World in 2003. Furthermore, an upturn is also expected in output from the
former command economies of China and Russia.

Why of Steel Futures

1. Wide Price Variation

The domestic steel prices show high variation on a monthly basis. The instability in
domestic prices is mainly derived from the wide variation in international steel prices and
the imported steel prices.

Monthly Variation in Steel Prices between Feb 2002 – Dec 2003

Percentage Change > 5 2 - 5 <2 Max. Absolute

No of Times Change
Ingots – Mandi 2 10 10 8.3
HRC 2.5 – Mumbai 8 3 11 12.2
HRC 2.0 - Imported 12 4 6 21.1
HRC fob - Europe 5 9 8 15.6

The international steel prices are distorted and show wide vary based on global over
capacity, subsidy & government support, safeguard measures against imports.

2. No Government Restrictions

The domestic steel industry was de-licensed and decontrolled in early 1990’s. The price
regulation is also abolished and as such the Government has no control over prices. The
Government has also considerably brought down the customs duty and excise duty in the
last few years. The steel distribution control is also removed except 5 priority sectors.

In the absence of any concrete reference price on the domestic steel traded in the country,
the Government in the National Steel Policy has emphasized the need of steel derivatives
to smoothen price variation. This important price risk management tool in the form of
futures trading is essential for continuous development of the sector.

3. Large Number of small and marginal players in private and unorganized sector

In India, 68 % of crude steel is produced by private sector and 56.5 % of finished steel is
produced by secondary producers. With the liberalized Government policy in place, more
number of private players is expected to enter, participate and grow in the steel industry
in the coming days, resulting in higher demand for right pricing based on indicative
markets.

Thus there is a whole lot of producers and buyers in the production and supply chain
whose business is hugely dependent on the right price discovery of the commodity.

4. Buoyant domestic industry and its international linkages

The steel market in Southern Asia, including India has grown by 4.7 % CAGR since
1980. The demand of steel in the region by 2010 is expected to rise by 43 %. In India the
domestic demand and exports are in a rising trend since the last couple of years.

The Indian industry also imports specialized steel as the domestic manufacturers are more
comfortable in producing construction steel. Thus there are high linkages with
international markets.

5. Standardized Quality

In the presence of IS Grades the commodity steel can be reasonably standardized in the
form of long (ingots) and flat (coil).

FACTS AND FIGURES

Iron and steel in history

It is believed that iron in pre-historic times may have been obtained from fragments of
meteorites and it remained a rare metal for many centuries. Even after man learned how
to extract iron from its ores, the product probably was so relatively soft and
unpredictable, that bronze continued to be preferred for tools and weapons. Eventually
iron replaced the non-ferrous metal for these purposes when man learned how to master
the difficult arts of smelting, forging, hardening and tempering iron.
Man's use of iron in antiquity is attested by references to the metal in fragmentary writing
and inscriptions from the ancient civilizations of Babylon, Egypt, China, India, Greece
and Rome. Archeological finds in Mesopotamia and Egypt are proof that iron, and later
steel, have been in the service of mankind for almost 6000 years. In early times, iron was
melted with the use of charcoal made from wood. Later coal was discovered as a great
source of heat. Subsequently, it was converted into coke, which was found to be ideal for
smelting of iron ore.

Iron kept its dominant position for around 200 or more years after the Saugus works, the
first successful iron works in America, was founded in 1646. With the advance of the
Industrial Revolution, iron formed the rails for the newly invented railroad trains. It was
also used to armour the sides of the fighting ships. About the mid-19th century, the age of
steel began with the invention of the Bessemer process (1856), which allowed steel to be
made in large quantities and at reasonable cost.

Use of iron in ancient India

Indian history is also full of references to the use of iron and steel. Some of the ancient
monuments like the famous Iron pillar in New Delhi or the massive beams used in the
Sun Temple at Konark bear ample testimony to the technological excellence of ancient
Indian metallurgists.
The use of iron in India goes back to the ancient era. Vedic literary sources such as the
Rig Veda, the Atharva Veda, the Puranas and epics are filled with references to iron and
to its uses in peace and war. According to one of the studies, iron has been produced in
India for over 3000 years in primitive, small- scale facilities.

Some milestones in iron and steel in Indian history

326 BC Porus presented Alexander 30 lbs of Indian iron

Kautilya (Chanakya) showed knowledge of minerals, including iron ores,
300 BC
and the art of extracting metals in 'Arthshastra'.
A 16-meter Iron pillar erected at Dhar, ancient capital of Malwa (near
320 AD
Indore).
Iron pillar in memory of Chandragupta II erected near Delhi. This solid
330-380 AD shaft of wrought iron is about 8 meters in height and has dia. 0.32 to
0.46m.
13th century Massive iron beams used in the construction of the Sun temple, Konark
Indian steel known as 'Wootz' of watery appearance used in the Middle
16th century
East and Europe
Manufacture of cannons, firearms and swords and agricultural implements
17th century 1830 Suspension bridge built over the Beas at Saugor with iron from
Tendulkhma (MP). JM Heath built iron smelter at Porto Nova, Madras
 Presidency
1870 Bengal Iron works established at Kulti
1907 Tata Iron & Steel Company formed
Indian Government entered into agreement with Krupp Demag, Federal
1953
Republic of Germany to set up steel plant at Rourkela
Hindustan Steel Limited formed to construct and manage three integrated
1954
steel plants at Rourkela, Durgapur and Bhilai
Second Industrial Policy resolution vested the state with the exclusive
1956 responsibility for developing industries, including iron and steel, and the
term Public Sector came into use for these
1960 Alloy steels plant installed at Durgapur
1965 Government of India signed agreement to establish steel plant at Bokaro
1973 Steel Authority of India Limited formed on 24th January

Global Scenario

World's total crude steel production grew at a slower rate during the first half of this
century and the growth rate picked up at a significant rate after the second world war:

1900 28 MT 1986 713 MT

1927 101 MT 1987 736 MT
1943 159 MT 1988 780 MT
1946 111 MT 1989 785 MT
1951 211 MT 1990 770 MT
1968 523 MT 1991 736 MT
1972 630 MT 1992 723 MT
1974 703 MT 1993 730 MT
1979 746 MT 1996 750 MT
1982 645 MT 1997 799 MT
1983 663 MT 1998 777 MT
1984 771 MT 1999 788 MT
1985 719 MT

Growth of steel production in the world*

* Figures are from Statistics for Iron and Steel Industry in India, 2000

World Demand
The apparent consumption of steel is expected to grow at 2.4% in 2001-2002. However
world steel dynamics estimates this growth in 2001-2002 to be around 1.4%. Recent
estimates show that the total world apparent consumption of steel will be around 769.2
MT in 2001 and 830 MT by 2005.

The global steel markets growth from 1980 has been around 1% (CAGR). However there
are wide regional disparities among the developing world (4.7%), developed world
(0.5%), and Eastern Europe (-5.5%).

According to World Steel Dynamics, steel consumption in the Pacific Basin during 1999-
2010 is expected to rise by 43%, while in the Atlantic Basin, it is expected to rise by
25%. The Pacific Basin is expected to remain short of steel, while the Atlantic Basin is
expected to remain with an excess supply of steel making capacity.

Disclaimer
This document is for information purpose only. Certain information herein has been
acquired from various external sources believed to be reliable. While we have taken
reasonable care during compilation of this document, we assume no responsibility for any
error or discrepancy in the information herein. You must make appropriate judgement
without any prejudice or compulsion.

Copyright
All rights reserved. No part of the newsletter can be reproduced or copied in any form by
any means without the prior permission of Multi Commodity Exchange of India Ltd.

Contact Us
Multi Commodity Exchange of India Ltd.
1st Floor, Malkani Chambers, Off Nehru Road,
Vile Parle (East)
Mumbai – 400099
Tel: 91-22-26164146
Fax: 91-22-26118195
Email: info@mcxindia.com
Website: www.mcxindia.com